Budget 2024 expectations: Mega changes in insurance
Budget 2024 proposal: Composite license for insurers to provide life, health, and general insurance policies
The provision of composite licenses will allow life insurers to underwrite health insurance or general insurance policies. According to the Insurance Act, of 1938, life insurers can only offer life insurance covers, while general insurers can offer non-insurance products like health, motor, fire, marine, etc. So, the Insurance Regulatory and Development Authority of India (Irdai) does not allow composite licensing for insurance companies. So, currently, insurance companies cannot offer both life and non-life products as one entity. However, the upcoming amendment in the Act during the Budget session, is set to change this rule — a single entity could soon offer life and non-life products.
Commenting on this move, Sumit Bohra – President, of the Insurance Brokers Association of India (IBAI) says, “Allowing life insurers to underwrite health insurance will be a good idea as the Life Insurance companies have a good background about the health of the insured (while underwriting him for life proposal) and it is their interest about the longevity of the insured through better medical facility to save on the claims under life insurance policies.”
Budget 2024 expectations: More insurance players to enter the market with more products focused on your need
The draft Insurance Laws (Amendment) Bill, 2023, likely to come during the Budget session, is set to ease the minimum capital requirements for insurers while reducing the solvency norms. Currently, the minimum capital of Rs 100 crore is required for life, general, and health insurance businesses and Rs 200 crore for reinsurance businesses, as per the law. The proposed amendments is expected to allow the regulator to set varying minimum capital based on the classes/sub-classes of insurance businesses the insurer engages in. Experts point out that the ease of capitalisation requirements can help more players who focus on micro-insurance or agriculture insurance to enter the insurance market. It would serve two purposes — The change in provisions would bring more affordable insurance options for customers from a need-based approach while it would create more jobs in the insurance sector. Bohra says, “Differential capital requirements depending upon the area of operation or sector is a welcome move but the reduction in solvency margin may not be a good idea as this may lead to systematic risk build up in future.”
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There are also proposals to issue captive licenses for insurers, change in investment regulations, one-time registration for intermediaries, and allow insurers to distribute other financial products, sources said. A “captive insurer” will be a general insurance company undertaking business exclusively for its holding/subsidiary/associate companies. This move may allow conglomerates to incorporate an insurer to cover business-related risks within their groups.
Gaurav Dubey, Founder and CEO of LivLong 365, a health-tech startup says, “One of the primary expectations from the budget is passing of Insurance Act which allows the issuance of specialised licenses like OPD solutions under health insurance category. Such a license would encourage innovation and provide a progression towards preventive healthcare there by reducing overall healthcare expenses for a country like India. Also, regional licences for the health insurance business are needed, as this can lead to more tailored and effective policy design and administration, ensuring that the unique healthcare needs of different regions are better met in the long run.”
Budget 2024 proposal: One-time registration for insurance intermediaries
Pavanjit Singh Dhingra, Joint MD, Prudent Insurance Brokers says, “One-time registration for insurance intermediaries is a welcome step in the maturation of the Indian insurance market.”
He further adds, “Under the initial licensing conditions, licenses were for a period of three years and subject to renewal which limited capital inflow into the sector and affected the perception of business continuity. With this welcome move, insurance intermediaries will play a critical role in the vision of ‘Insurance for all’ by 2047.”
Anuj Parekh — Co-founder and CEO at Bharatsure, says, “The proposed amendment for one-time registration of intermediaries represents a significant stride in the right direction. It promises to alleviate compliance burdens and foster growth in the country’s distribution ecosystem.”
Another proposal is to allow insurers to provide ancillary services related to the insurance business to policyholders.
Budget 2024: Will insurers sell other financial products such as mutual funds?
There is also a proposal to permit insurers to distribute other financial products as may be specified by regulations issued by the insurance regulator, say sources. When asked about what kind of financial products insures could sell, the sources say that it is believed that the proposed Bill may allow insurance companies to distribute other products such as mutual funds. Will it be a good move for customers? Well, only time can tell how the cross-selling of products through insurance channels will work. Bohra adds, “I am not in favour of distribution of other financial line products as we need a specialist for every field and cross-selling will lead to mis-selling or forced sell and may not be favourable to the customer.”
“The draft Bill is ready and it has to go to the Cabinet for its approval, sources said, adding that the finance ministry is hoping that it gets introduced in the upcoming session” the news agency PTI mentions. More details may be available once the bill is introduced.